To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

Wednesday, April 05, 2006

The More Things Change....

The epigraph to my book is a quote from Bohm-Bawerk's Capital and Interest:

I have criticized the law of Labour Value with all the severity that a doctrine so utterly false seemed to me to deserve. It may be that my criticism also is open to many objections. But one thing at any rate seems to me certain: earnest writers concerned to find out the truth will not in future venture to content themselves with asserting the law of value as has been hitherto done.

In future any one who thinks that he can maintain this law will first of all be obliged to supply what his predecessors have omitted--a proof that can be taken seriously. Not quotations from authorities; not protesting and dogmatising phrases; but a proof that earnestly and conscientiously goes into the essence of the matter. On such a basis no one will be more ready and willing to continue the discussion than myself.

He criticized Rodbertus in particular for being "content on almost every occasion to assert... in the tone of an axiom," the proposition that labor creates exchange value--justifying it in every case by an appeal to the authority of Smith and Ricardo.

I wrote my book as an attempt, in good faith, to meet Bohm-Bawerk's challenge. Now, in following libertarian discussions of my book since it came out, I've had occasion to observe more than once that the shoe is on the other foot.

Criticism of my book is a mixed bag. Some critical reviews, like those of Robert Murphy and Roderick Long, have been quite thoughtful. It's obvious, from looking at their reviews, that they read the book carefully. Although they disagreed with many of the ideas in the book, they were directly engaged with them and actually used their own critical thought processes in responding to them.

But the majority of criticisms I've seen, especially of my attempt to rehabilitate the labor theory of value in Part One, have the same failings that Bohm-Bawerk observed a century ago in proponents of the labor theory. As typical examples, take this comment from the Mises Blog announcement of the symposium issue of JLS:

The economic value of a good or service is what someone thinks it is (people often put different values on the the same object). This is true BY DEFINITION (it is not a matter that needs to be "proved").

The price a person offers for a good will be less than or equal to the value they place upon it.

The "cost of production" (labour cost or other costs) does not determine economic value - it has nothing to do with economic value.

If the costs of production are greater than the value that any potential buyer places on a good that just means that the producer will either have to sell at a loss or not sell at all.

Why waste a long article dealing with the labour theory of value?

One might as well write a careful refutation of the "four elements" (Earth, Fire, Water, Air) theory of the physical world.

--Paul Marks

Or this one:

Carson['s] entire framework is built on a foundation disproven a long time ago. The labor theory of value is obselete. There's no 'recasting'. He's trying to fit a square peg into a round hole. Seriously, it's time to move on to realistic foundations, like, say, the subjective theory of value. I can't believe people are actually debating stuff like this....--Steve

That the economic value of a good or service is a matter of what people think it is (i.e. is not a matter of the cost of production) is true by DEFINITION (it is not a matter of proving it).

Different people put different values on the same good - and the prices they offer for it will be less than or equal to the value they place upon it (unless they are offering a higher price as a way of giving the seller money - as hidden charity).

If this is less than the cost of production (not just labour costs) the seller has the choice of selling at a loss or not selling.

As for lending out money for people to build factories.

Lending (for any purpose) must be from real savings (i.e. income people have chosen not to consume).

Trying to finance borrowing by printing money (or book keeping tricks) in order to "reduce interest rates", sets in motion a boom-bust cycle.

In short both the "labour theory of value" and the credit expansion way of getting rid of "monopoly capitalists" are nonsense.

I know we are supposed to be polite on this site.

But, as I have written before, I am irritated (to put it mildly) that people can earn a living [!] by writing nonsense and other people waste time writing formal examinations of this nonsense.

...Block’s response to most of my criticisms of the Austrians amounts to little more than talking past them, and reasserting some dictum of Böhm-Bawerk or Mises that "everybody knows," without ever directly addressing my counterarguments.

Such critics appeal to the authority of Bohm-Bawerk and Mises in the same way a medieval scholastic might appeal to Aristotle: "Bohm-Bawerk said it, I believe it, that settles it." Or as Keith Preston put it in one of the comment threads,

Some of Block's other comments remind me of something a Bible-banger might say: "It's in the Word of Mises! I believe! Praise Rothbard! Amen!"

They smugly assert that the subjectivists or marginalists "disproved" the labor theory of value, with only the vaguest idea either what labor and cost of production theories of value actually entail, or exactly where the subjectivists differ from them. They repeat second-hand criticisms of the labor theory borrowed from Austrian polemicists, while showing little evidence of having actually read either Ricardo and Marx or the Austrians. They repeat, as devastating criticisms of cost of production theories, strawman arguments about mud pies, sunk costs, and irreproducible goods, totally unawarene that the classical political economists and the Marxists specifically addressed all those issues and that the labor theory of value was intended to apply only to the equilibrium price of reproducible goods.

Worst of all, they discuss the LTV as though it made embodied labor the basis of some intrinsic value in a good. In fact, the LTV and other production cost theories of value simply assert that the price of reproducible goods gravitates toward a "normal" equilibrium value determined by cost of production (which is nowhere directly refuted by the subjectivists, since their claim to have replaced cost with utility as the basis of value is based on a very specialized and artificial understanding of those terms, and not on their meanings in ordinary usage).

In other words, such critics resort to "quotations from authorities" and "dogmatising phrases." Like James Taggart, their minds are so clouded by what "everybody knows" that they've lost the ability to think.

A couple of commenters (both of whom have my humble thanks) took Marks to task for his lame comments on the labor theory. In the comment thread to Long's post, Joshua Holmes wrote:

Marks, you need to read Carson's book before you talk any more about what you think the labour theory of value is. Hell, you need to read the blog post to which you're responding. Prof. Long says:

Carson defends the labor theory of value, but in a subjectivized form, holding that the price of a good tends to correspond to the subjective disutility of the labor needed to produce it... (emphasis his)

the argument Mill made that full understanding of one's own position can't be had without confrontation with the differing views of others...complacency, dogmatism, and rote memorization are the likely results otherwise.

Hmmm.... Like the kind Bohm-Bawerk referred to above, maybe? In other words, Marks, read the damn material before you comment on what it says! Unless actually knowing what the hell you're talking about before you shoot your mouth off is one of those "luxuries" that you can't afford.

As for banking - as is pointed out by Dr Reisman (and, as he reminds us, by many other people over the last few centuries). One can not lend out money that one has not got (without creating a boom-bust cycle).

"I want to build a factory, but I have not get the money and no one will give me an interest free loan".

Dr Carson's "monopoly profits of the capitalist".

Do we really need a formal article to show that Dr Carson is in error?

Have the population become so brain-dead that they can not see that "unless everone gets interest free loans whenever they want to build a factory, factory owners are getting moneopoly profits" is nonsense?

Let's see.... 1) The first section of my rejoinder, on the Rothbard article, specifically denies the claim that mutual banking is an inflationary scheme. In fact, the mutualist argument against banking entry barriers directly parallels Rothbard's argument against such entry barriers in the life insurance industry. 2) A mutual bank that issues notes against a member's property isn't "lending" money any more than a commercial bank that makes a secured loan under the present system. The only difference is that, under the present system, the state's entry barriers enable the capitalist bank to charge a monopoly price for the service. 3) The objection isn't that "no one will give me an interest free loan," but that the state restricts competition in the supply of credit and thus makes it artificially scarce and expensive. "I never actually read anything Dr Carson wrote--but I did stay in a Holiday Inn Express once!"

The comment threads under the two posts at Mises Blog are worth reading for other reasons. Several people, including Richard Garner, have some kind words to say about Yours Truly. And Keith Preston ably jumps into the ring over the historical nature of state capitalism, and the neo-fascist nature of the present economy. In particular, "Person" got all exercised over my suggestion that state subsidies to transportation might (surprise, surprise, surprise!) promote consumption of transportation services at above Pareto-optimal or free market levels. As I understand Person's argument (if you can call it that), 1) bigness is inherently more efficient, 2) cheap transportation makes bigness possible, and therefore 3) saying that a free market would have less transportation consumption and less centralization is tantamount to saying we'd be worse off under a free market. Now, it seems to me that if the spurious "efficiencies" of large size and centralization only appear when part of the total cost package is shifted or concealed, we're not really "better off" now. We'd be better off, and more efficient, if all the costs showed up on the ledger. But Keith's attempts at reasoning with this fellow availed little. Are you really surprised?

There's one area in which I have to stand up in defense of my critics. Keith Preston objects to Robert Murphy's focus on Part One of the book, on value theory, at the expense of Part Two (on the historical development of state capitalism). I have to say, in Murphy's defense, that I originally intended Part One as the theoretical core, and Part Two as a historical application of those principles. So the material on value theory is really the heart of the book. That's not to say the historical material can't be read by itself, if economics puts you to sleep. But value theory is what I had in mind when I set out to research the book, and the historical material was taken up almost as an afterthought.

8 Comments:

after attempting to read the journal articles, and reading the comment thread at jls, i am rather shocked at the sheer level of outright hostility to your ideas. it seems only two of the essayists even gave your book a chance.

i think it would be very interesting to get a similar analysis of your work from the left. now, i don't know what the equivalent lefty journal would be, but maybe it doesn't have to be equivalent. it could even be from a left-liberal or progressive journal.

I haven't got through it all yet (and it will take me a while since I don't know doodly about economics), but it seems to me that the subjectivists have decided to privilege the perspective of buyers (usually) in discussing value. I am having a hard time seeing how this contributes to the concept of value since there is no basis in the subjectivist theory for making predictions. You just get value measured after the fact of a transaction. On the other hand, a labor theory at least provides some predicate for predicting a range of values for a good.

Espousing LTV does not mean one imagines that there is a feature of objects in the world, known as value, that exists idependently of actors. Rather, it means that for some analytical purposes that it is useful to consider the costs of production. The subjectivists seem to regard their perspective as axiomatic and to assume a stance of denying the possibility of speaking about value as anything other than caprice.

This hostility is a sure sign that you are introducing much needed arguments into the overall libertarian debate. Don't be discouraged. I commend you for your good faith effort to reach out to libertarians. They can be a dogmatic bunch, and they'll take time to come around - I know I did.

Your book takes a lot of energy to read, especially for somebody not versed in economics. I wish I had more substance to my defense of your work, but frankly I'm still digesting it. However, I will say that your writing really does guide the reader through your argument by the hand. The only way somebody could not understand your thesis is if they refuse to give it a chance. Now, it wouldn't surprise me if some libertarians have gotten so used to their assumptions that they don't want to take the time to question them. That's a valid excuse for withdrawing from the conversation, of course: it's just not a valid reason to dismiss the thesis, let alone a rational counterargument.

Vache Folle, I originally had a brief discussion in this post of the substantive differences between cost of production and subjective theories of value, but edited it out. The gist of it was that the subjective theories didn't really supplant or disprove the cost theories, but complemented them. Jevons' inflammatory rhetoric about having disproved Ricardo and having replaced cost with utility as the basis of value is only true in a very limited and specialized sense of those terms. The subjective theory assumes that value is determined by utility AT ANY POINT IN TIME, with the stock of goods being treated as fixed at the point of exchange. When time is factored in and the supply of goods is allowed to fluctuate in response to price signals, what happens (as even the Austrians admit) is that supply rises or falls to the level at which the "utility" of the last unit produced just covers cost of production. In other words, they're saying the same damn thing Ricardo did. The marginalist paradigm, the marginal pairs, and all that stuff, didn't refute the classical cost theories. They provided a sophisticated mechanism for describing how the law of cost operates.

Jeremy, I think your analysis is spot on. Some critics are so smug in their assumption that the truth is found in the gospel of B-B or Mises that it wasn't even necessary to find out what I was saying before summarily dismissing it as wrong.

Keith Preston suggested that many of the criticisms of you book were beside the point since they did not focus much on the fact of state monopoly capitalism much, and when they did tended simply to focus on whether such a thing should be called capitalism. Instead they focused on your economics and land theory.

I was inclined to view this neglect as a good sign: A sign that the reviewers substantially agreed with the historical issue of state capitalism, and so felt it didn't need discussing. Perhaps I was too charitable.

I Haven't got to Roderick Long's article yet, but I imagine that his will be polite, seeing that he is a good guy generally. I liked seeing Rothbard's article, as it was one I was interested in seeing (I was about to order Egalitarianism as a Revolt Against Nature, even though the best essays from it are already on line, just so I could read the one on the Spooner Tucker doctrine). I do recall Tucker saying that mutual banks wouldn't actually lend money (in fact, I think he says so in State Socialism and Anarchism, which is so well read Rothbard couldn't but help to have seen it), and James Martin says the same thing on his chapter on Greene. Of course, there is the question of whether a mortgage is a loan, which would take us back to the issue.

Bob Murphy's article was good and polite. I haven't bothered with Riesman's yet. He and I had a disagreement on the Mises blog about state capitalism before (in fact, he devoted an entry on his own blog to me!) and I view him as pretty much an establishment economist. I'm prossibly being uncharitable here, but it his Rand connections, I suppose.

I was surprised by Walter Block's article. The label of "Marxist" (used by Reisman too, I gather, is ludicrous: Anybody reading your book, or even Bob Murphy's article, would know that there are differences between your approach and Marx's, and any way, using a labour theory of value does not a Marxist make - Bob Murphy even suggests Bastiat used a cost theory of prices, but nobody there calls Bastiat a Marxist!). Block said he recognised a distinction between the present state capitalism and laissez faire capitalism, and I do think it is correct that you conflate the two unnecessarily - calling state capitalism, or mercantilism, capitalism confuses the issues. Most defenders of laissez faire capitalism would hold aloft the banner of "competition everywhere and always; free trade the universal rule" and they would claim that in doing so they were defending capitalism, even though the phrase is Tuckers. They call capitalism what Tucker didn't. And, in fact, if Tucker would have allowed people in a free society to never ever establish mutual banks, for whatever reason, whilst defenders of free market capitalism would allow people to start them in their view of a free society, there is even less difference between the two positions.

But Then, having accepted that we presently have state capitalism, Block goes on to say that one could not say WalMart or Coca Cola are too big, because the market would not have made them so big if they were! That presumes there is a free market that they operate in! Even Milton Friedman and son suggest that the tax code has made businesses bigger than they need to be due to overcapitalisation in order to make corporate incomes capital gains. So how Walter Block can say such a thing is very strange!

As for the discussion on the mises blog, well, even when it was not about the LTV, posters were revealing that there is strong disagreement about the nature of state capitalism, its effects, and what to do about it. I think we need a JLS symposium on the matter!

The main sand-throwing on the historical questions came from Person, IMO. I enjoyed reading quasibill's comments because he's done a good job running circles around Ron Bailey on Pharma issues at Reason Hit&Run.

What's really amusing about the whole "Marxist" thing is that so many of the supposedly crippling attacks the subjectivists use against the LTV were actually first used by Marx himself against Proudhon. Sunk costs, socially unnecessary labor, and supply and demand were used by Marx to show that the law of value operated naturally through the price system, rather than requiring some sort of artificial labor note system.

Long's review was well thought out, and quite a challenge to answer. As I recall, Tucker said the function of a mutual bank was simply to enable the "borrower" to use his own property as a medium of exchange, in effect substituting the bank's better known credit for the private credit of the "borrower."

On the tax code, Karen De Coster recently had a good post on how the depreciation schedule encouraged the substitution of cubicles for built-in offices, and thus in a way promoted the Dilbert corporate culture. I'd say the same thing about a lot of other things like R&D tax credits, the writeoff for interest on corporate debt, and so forth, that promote concentration and high tech forms of production. I don't remember where I saw it, but somebody had a stat in the '90s showing that interest on corporate debt was higher than total corporate profits for the first time since the golden age of Finance Capital at the turn of the 20th century.

The JLS symposium sounds like a good idea. Over on the Mises thread, I mentioned Stromberg's two articles on monopoly capitalism as a good starting place.

"Carson defends the labor theory of value, but in a subjectivized form, holding that the price of a good tends to correspond to the subjective disutility of the labor needed to produce it..." (Roderick Long)

This, incidentally, is very close to Frederic Bastiat's theory of value and price. See Economic Harmonies.

However, I'm afraid I might need to apologize for some of my comments on the mises blog about your economics, as it's become clear that I misunderstood some of your positions. In particular, I'd like to ask this about your SLTV - you're not actually challenging the Austrain subjective theory of value so much as you are adding a gloss about how individuals may go about calculating value or predicting value? If that's the case, I think I jumped the gun when announcing I disagree with you there.

I'm still not sold on the absentee landlord issue, but that's a minor quibble. It looks like I'll have to place your book on my list of books waiting an in-depth read (which is unfortunately a long list at this moment).

Regardless, I agree with others that yours is a viewpoint that needs more exposure and discussion, even if I don't agree with all of it. Keep at it!